Edited version of private advice

Authorisation Number: 1051791203985

Date of advice: 16 December 2020

Ruling

Subject: GST and supply of goods and services in Australia

Question 1

Do you need to collect GST when you provide maintenance services that include supply of parts for the machines to an Australian business (X) under the contract you have with an Australian company?

Answer

When you supply the maintenance services that include supply of parts for the machines to X under the contract you have with the Australian company, you make two distinct supplies and they are a supply of maintenance services and a supply of goods (parts for the machines) to X.

The supply of maintenance services is not connected with Australia under section 9-26 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) The supply is therefore outside the scope of GST and you do not need to collect GST on the supply of the maintenance services.

The supply of goods is connected with Australia under subsection 9-25(1) of the GSTAct as you have the goods available/delivered to X in Australia. However, you are not required to register for GST under section 23-5 of the GST Act as your annual turnover for the supplies is below the GST registration threshold of AU$75,000. In this instance you do not need to collect GST on the supply of the goods to the Australian business in Australia.

Question 2

Do you need to collect GST when you supply equipment enhancement services to X?

Answer

No, you do not need to collect GST when you supply equipment enhancement services to X as your supply is not connected with Australia under section 9-26 of the GST Act and therefore is outside the scope of the GST law.

Question 3

If you must collect GST how do you register for an ABN and GST?

Answer

As advised in questions 1 and 2 you are not required to collect GST on your supply of services and goods in Australia.

However, if at any time the annual turnover of your goods reaches or exceeds the GST registration threshold of AU$75,000 you will be required to register for the standard GST with an ABN. Information on how to register for an ABN and GST is at https://www.abr.gov.au/business-super-funds-charities/applying-abn/abn-businesses-outside-australia

Relevant facts

You are a company located outside Australia and have been engaged by an Australian company for the provision of maintenance services to X. You have provided us with a copy of the contract.

During the maintenance service period, if it is the routine check and tuning, you have obtained contract services from local contractors, and if there are more complex issues, you will have your engineers to check the machines in Australia.

Your overseas service engineer to date only provides remote support and did not travel to Australia.

When performing the maintenance services, you will supply parts for the machines. The value of the parts that will be supplied under the contract can vary depending on the customer machine usage. The estimated amount of the goods supplied to X is less than AU$75,000. The machine parts replacement is included as part of the monthly maintenance revenue.

You have contracted a third party logistic in Australia to maintain the stock and record the transactions of the parts stored in Australia. There is no plan for overseas staff to manage the parts in Australia.

X has also requested that you supply equipment enhancement services to it as well. The equipment enhancement services to X is partly done from overseas and partly in Australia through Australian contractors. There are no goods supplied for this service.

The value of the supply of maintenance and equipment enhancement services is above AU$75,000.

You currently are not registered for GST. The Australian company and X are registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-25

A New Tax System (Goods and Services Tax) Act 1999 section 9-26

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

Reasons for decision

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Questions 1 and 2

Summary

From the information given, you provide following supplies to X:

•                     A supply of services (maintenance and equipment enhancement). The supply of services is not connected with Australia under section 9-26 of the GST Act and therefore it is outside the scope of GST.

•                     A supply of goods (parts for the machines). The supply is connected with Australia under subsection 9-25(1) of the GST Act. However, you are not required to register for GST as your annual turnover is below the GST registration threshold of AU$75,000.

Detailed reasoning

GST is payable on a taxable supply.

Under section 9-5 a supply is a taxable supply if:

a)            the supply is made for consideration; and

b)            the supply is made in the course of an enterprise that you carry on; and

c)            the supply is connected with Australia; and

d)            the supplier is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

From the information given you satisfy paragraphs 9-5(a) and 9-5(b) of the GST Act as you make your supplies for consideration and the supplies are made in the course of a business that you carry on in a country other than Australia.

The next step is to consider paragraphs 9-5(c) and 9-5(d) of the GST Act.

Paragraph 9-5(c) of the GST Act

From the information given you are making a supply of goods and services when providing these supplies to X.

Section 9-25 of the GST Act defines when a supply is connected with Australia. For the purposes of determining whether a supply is connected with Australia section 9-25 of the GST Act makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property.

Supply of services

A supply of anything other than goods or real property (for example services) is connected with Australia under subsection 9-25(5) of the GST Act if one of the paragraphs in that subsection applies to the supply:

a)            the supply of the thing is done in Australia

b)            the supply is made through an enterprise carried on in Australia;

c)            the supply is a right or option to acquire another thing connected with Australia;

d)            the supply is made to an Australian consumer (Australian resident not registered for GST or registered and the supply is for private use).

Goods and Services Tax Ruling GSTR 2019/1 Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia) provides guidance on when a supply of anything other than goods or real property is connected with Australia and is available at https://www.ato.gov.au/law/view/document?docid=GST/GSTR20191/NAT/ATO/00001

From the information given paragraphs (b), (c) and (d) in subsection 9-25(5) of the GST Act do not apply to your supply of services as:

•                     you do not have a presence in Australia when the overseas service engineer makes the supply remotely from outside Australia and have Australian contractors to assist with the services to be provided to X

•                     the supply is not a supply of right or option to acquire another thing connected with Australia

•                     the supply is not made to an Australia consumer.

We will now consider paragraph 9-25(5)(a) of the GST Act.

Paragraph 9-25(5)(a) of the GST Act

Some of the services are performed in Australia through Australian contractors. In this instance the services performed in Australia are connected with Australia under paragraph 9-25(5)(a) of the GST Act.

Section 9-26 of the GST Act outlines exceptions to the 'connected with Australia' rules for various supplies made by a non-resident supplier and done in Australia.

Under item 1 in the table in subsection 9-26(1) of the GST Act a supply of anything other than goods or real property is disconnected from Australia if:

•                     the supplier is a non-resident and the supply is made through an enterprise that the non-resident carries on outside Australia;

•                     the thing is done in Australia; and

•                     the recipient of the supply is an Australian based recipient of the supply.

An Australian based recipient is a GST registered entity who carries on its enterprise in Australia and the acquisition of the supply by the entity is not solely of a private or domestic nature.

From the information given your contract to supply and provide the maintenance services to X is with the Australian company, an entity who is carrying on its business activity in Australia and is registered for GST. The acquisition of your services under the contract is for business purposes. Your supply of equipment enhancement services is to X who is also registered for GST and the acquisition is for business purposes.

In this instance the requirements in item 1 in the table in subsection 9-26(1) of the GST Act is satisfied when you supply the two services through a business that you carry on in a country other than Australia and these services are done in Australia when supplied to businesses that are registered for GST.

Accordingly, your supply of services to the Australian company and X is not connected with Australia under item 1 in the table in subsection 9-26(1) of the GST Act. The turnover of this supply is not included in the calculation of annual turnover for GST registration purposes. Your supply of the two services is outside the scope of GST and therefore no GST is to be collected on the supply.

Note:

In the event your engineer comes to Australia to perform the work and is in Australia more than 183 days, you will have a presence in Australia and your supply would be connected under paragraph 9-25(5)(b) of the GST Act. Where the turnover of the services is above AU$75,000 you will be required to register for GST and collect GST.

For more information on when an enterprise is carried on in Australia refer to Law Companion Ruling LCR 2016/1 available at https://www.ato.gov.au/law/view/document?DocID=COG/LCR20161/NAT/ATO/00001

Supply of goods

A supply of goods is connected with Australia if one of the following applies:

1.            the goods are delivered or made available in Australia to the recipient of the supply (subsection 9-25(1) of the GST Act).

2.            the supply of goods involves the goods being removed from Australia (subsection 9-25(2) of the GST Act).

3.            the supply of goods involves the goods being brought to Australia and the supplier imports the goods in Australia (subsection 9-25(3) of the GST Act).

4.            the supply of the goods is an offshore supply of low value goods (goods with customs value of AU$1,000 or less) that is imported into Australia by consumers (purchasers not registered for GST or registered and the purchase is not for the purpose of the Australian business)(subsection 9-25(3A) of the GST Act).

For information on when a supply of goods is connected with Australia refer to Goods and Services Tax Ruling GSTR 2018/2 Goods and services tax: supplies of goods connected with the indirect tax zone (Australia available at https://www.ato.gov.au/law/view/document?DocID=GST/GSTR20182/NAT/ATO/00001&PiT=99991231235958

From the information given the parts you provide to X are located in Australia. In this instance your supply of the goods to X is connected with Australia under subsection 9-25(1) of the GST Act since you have the goods delivered/available to X in Australia.

Accordingly, paragraph 9-5(c) of the GST Act is satisfied. The next step is to consider if you are required to be registered for GST for the purpose of paragraph 9-5(d) of the GST Act.

Paragraph 9-5(d) of the GST Act

Under section 23-5 of the GST Act you are required to register for GST if you are carrying on a business and the annual turnover for your supply reaches the GST registration threshold of AU$75,000 or more.

Under section 23-10 of the GST Act you may choose to register for GST where you are carrying on a business and your annual turnover is below the GST registration threshold of AU$75,000.

Your GST turnover meets the registration turnover threshold if your current GST turnover or your projected GST turnover threshold is at or above the turnover threshold.

Your current GST turnover is the value of all the supplies (sales) you make during the current month and the previous 11 months. Your projected GST turnover is the value of all of your sales you make during the current month and the next 11 months.

Both the current and projected GST turnover is based on your gross income, excluding all of the following:

•                     Sales that are input taxed sales

•                     sales not connected with an enterprise that you carry on

•                     sales that are not made for consideration (unless the sales made to associates).

You estimated the value of the goods to be provided to X when performing the maintenance services would be less than AU$75,000. In this instance you are not required to register for GST. Your supply of the parts is outside the scope of GST and no GST is to be collected on the supply.

Question 3

As advised in question 1 and 2 you do not need to collect GST as:

•                     your supply of services is not connected with Australia and therefore outside the scope of GST, and

•                     you are not required to register for GST when you supply the goods to the hospital as your annual turnover is below the GST registration threshold of AU$75,000.

Where you are not required to be registered for GST, you will need to calculate your current and expected annual GST turnover each month to identify if you are required to register for GST purposes. Generally, you must register within 21 days when the GST turnover either meets or exceeds the GST registration threshold of AU$75,000.

Where you are registered for GST or choose to register for the standard GST with an ABN, you will need to collect GST on your supplies of goods as there is no provision under the GST Act that makes your supply of the goods in Australia GST-free or input taxed. You will be able to claim back GST credits for the GST paid on creditable importation and taxable supplies you have acquired for business purposes.

For more information on the standard GST with an ABN and how to register refer to the fact sheet 'Australian GST registration for non-residents' available at https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Doing-business-in-Australia/Australian-GST-registration-for-non-residents/